During the recent annual conference of the Association of Average Adjusters held in London, Burkhard Fischer, the Chairman, shed light on the ongoing complexities confronting the maritime industry. In his presentation titled “When War Risk becomes War Reality,” Fischer delved into the repercussions of the Russia-Ukraine conflict, particularly for vessels ensnared in Ukrainian ports.
Fischer underscored that the conflict had taken the maritime industry and war risk underwriters by surprise. Traditionally, war risk insurance, obtained at a nominal premium, was tailored to shield against the residual impacts of war during peacetime. However, the active conflict scenario in Ukraine presented a novel challenge. Numerous vessels had entered Ukrainian waters under basic war risk insurance, sidestepping the necessity of reinstating their policies at a higher premium.
This predicament culminated in a delicate situation in 2022, with approximately 70 foreign-flagged vessels detained, potentially triggering claims for constructive total loss (CTL) without supplementary premiums. This unforeseen turn of events sparked a discourse on reassessing the current minimal level of basic war premiums.
Additionally, Fischer delved into the dilemmas confronting shipowners and charterers. As charters were annulled due to the conflict, shipowners found themselves at a crossroads. They were compelled to either forego additional premiums, risking the non-reinstatement of their war risk coverage, or engage in negotiations for reduced premiums by scaling down the vessel’s insured sum.
Fischer broached a significant precedent, the case of Scott v Copenhagen Reinsurance Co (2003), which centered on a British Airways aircraft stranded and subsequently destroyed during the Gulf War. This case led to a court ruling that the commencement of hostilities constituted the triggering event for the loss, rather than the annulment of the war risk policy. Such a ruling prompted contemplation on whether analogous coverage could be argued for vessels stranded in Ukraine.
In concluding his address, Fischer underscored the unique nature of each case. He reminded the audience that while the situation in Ukraine has spurred industry-wide deliberations, each stranded vessel has its own narrative. The maritime industry and its insurance sector persevere in navigating these unparalleled challenges, with no readily apparent solutions on the horizon.
